Working Paper: NBER ID: w26601
Authors: Chiara Farronato; Andrey Fradkin; Bradley Larsen; Erik Brynjolfsson
Abstract: We study the effects of occupational licensing on consumer choices and market outcomes in a large online platform for residential home services. We exploit exogenous variation in the time at which licenses are displayed on the platform to identify the causal effects of licensing information on consumer choices. We find that the platform-verified licensing status of a professional is unimportant for consumer decisions relative to review ratings and prices. We confirm this result in an independent consumer survey. We also use variation in regulation stringency across states and occupations to measure the effects of licensing on aggregate market outcomes on the platform. Our results show that more stringent licensing regulations are associated with less competition and higher prices but not with any improvement in customer satisfaction as measured by review ratings or the propensity to use the platform again.
Keywords: Occupational Licensing; Consumer Choices; Market Outcomes; Online Platforms
JEL Codes: J2; J44; K2; L15; L51; L88
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stringent licensing regulations (D45) | competition (L13) |
| stringent licensing regulations (D45) | prices (P22) |
| stringent licensing regulations (D45) | customer satisfaction (L15) |
| verified licensing status (D45) | consumer hiring decisions (D12) |
| online reviews (Y30) | consumer hiring decisions (D12) |
| price (D41) | consumer hiring decisions (D12) |
| first review received (Y30) | hiring probabilities (M51) |
| licensing visibility (L24) | consumer choices (D10) |